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Bush's climate strategy spells disaster, now green business must take a lead

It's that time of year again. The G8 summit is upon us, prompting environmentalists, green businesses and clean tech investors to come together in the vain hope they will finally get both the global regulatory framework they desire and some clarity on what is going to happen to Kyoto and its already faltering carbon trading mechanisms post-2012.

This flickering hope typically lasts a few days before it is once again snuffed out by a fudged official statement and a series of off the record briefings in which the world's leaders confirm they are still poles apart on how best to tackle global warming.

But this year things are different. This year the period of hopeful anticipation has ended before the summit has even started after US President George Bush gave a speech yesterday detailing a new strategy for addressing climate change that appears to have killed dead any hope of international agreement next week and left the green business movement more confused than ever about what to expect from the world's governments over the next few years.

Bush's left field proposals call for a new series of meetings of the world's most polluting countries to discuss action on climate change. By the end of next year the president claims these meetings will result in a "long term framework" for when the Kyoto Protocol expires, including targets for reducing green house gas emissions, interim national targets for individual countries "that reflect their own mix of energy sources and future energy needs", and agreements to share green technologies and eliminate trade barriers.

The charitable interpretation of this new strategy, and one endorsed by both Tony Blair and German Chancellor Angela Merkel, is that it is great news. It provides evidence that after years of procrastination the US, in Bush's own words, "takes this issue seriously"; accepts the scientific consensus about the cause and perils of global warming; and is committed to international co-operation to tackle the problem.

But while the politicians think this volte face is to be welcomed, environmentalists are less than convinced.

The Bush proposals are low on details, but what can be garnered from previous statements and White House briefings is that the new framework will not include binding targets and carbon caps, which Bush believes will damage the economy, will not include any form of carbon trading mechanism, is very unlikely to incorporate penalties for countries that breach their probably voluntary emission targets, and will lean heavily on R&D and new technologies.

The only problem with the strategy is that it won't work. Voluntary environmental regulations and targets have an appalling record of ineffectiveness. Meanwhile, the talk of investment in new green technologies, while welcome, distracts from the complete absence of a framework to aid adoption of existing green technologies.

Bush can talk up low carbon technologies all he likes, but they are worthless without a global regulatory framework that drives their adoption. For example, carbon capture technologies are making real progress and have the potential to allow countries such as the US and China to continue to exploit their massive coal reserves while limiting carbon emissions.

However, there is little or no financial reason why any coal fired power station would install the technology - it is an investment with no quantifiable financial return and any CEO authorising such an installation could easily be charged with failing to do their fiduciary duty. The only way to make such an investment make sense is if governments make it illegal for power stations not to install the technology or if there is a cost associated with carbon emissions, through either a carbon tax or carbon trading mechanism.

This same dilemma is repeated time and again with green technologies. For example, there are countless renewable energy technologies now available and they are all improving in efficiency. However, they produce energy that is more expensive than that gained from fossil fuels and that scenario is likely to continue for years to come. Once again without either a price on carbon that will drive up the cost of fossil fuel-based energy or a framework that subsidises the building of wind farms and solar panels, such as that found in Germany, these existing green technologies will not become competitive and will not be adopted on the required scale.

Even where there is a clear economic case for green technologies, such as with energy efficiency measures, adoption is staggeringly low because of concerns over up front costs and the relatively low cost of energy. It is also worth noting that the one green technology that Bush has been most vocal in his support for, biofuels, is the source of considerable fears that its widespread adoption could lead to environmental and humanitarian crisis.

Bush and his advisors must know all this. So what is the aim of the new proposals?

Well, it is hard to get away from the cynical view that the timing and nature of the announcement means that their main goal is to undermine the existing UN and G8 plans for a replacement to Kyoto - intended to be discussed at next week's meeting and a UN conference in Bali later this year - that will extend carbon trading, and set a binding target of limiting temperature rises to two degrees celsius.

The US strategy states that it is "essential" that there is a new framework for tackling climate change, but neglects to mention that there is already a UN framework in place and talks scheduled to improve it. Why Bush feels we need two frameworks is unclear.

The US administration said the two strategies will run in "parallel", but it is hard to see the Bush proposals as anything other than an alternative framework. They allow the US and any other country that does not agree with the UN plans for carbon trading and more stringent binding targets to walk away from the table next week saying "we've got this alternative strategy and we're going to back that instead".

The US plans will become a fig leaf for politicians unwilling to take tough decisions on climate change, allowing those countries that sign up to them to tell their increasingly environmentally-conscious populations that they are doing something to tackle climate change, while adopting a largely ineffective framework that is likely to be built on toothless voluntary targets that fail to deliver the deep cuts the scientists deem essential.

The UN's neutered carbon trading mechanism, meanwhile, will stumble on still lacking the support of the US and as such finding it ever harder to get countries to agree to carbon caps that will necessarily have to become more stringent over the next decade. "Why should we agree to this extra cost," they will ask quite reasonably, "while our US rivals continue to pollute for free?"

For green businesses and investors the whole affair will result in yet more confusion and uncertainty. The globally recognised price on carbon that those businesses already transitioning toward low carbon models are calling for (as it will penalise their less environmentally conscious competitors and reward them) appears as far away as ever and there is now every chance the credibility of the embryonic trading mechanisms will be damaged still further. The climate for green business models and investments may improve slightly, driven in part by US innovation, but the adoption of such technologies and processes will remain sporadic.

So what happens next? Well, Europe will push hard at the G8 summit next week for Bush to reverse his position on more stringent targets and carbon trading, and almost certainly fail. From there they may finally toughen their stance and, having seen Bush try to sideline their proposals, try and sideline the second term President himself and talk directly to individual State Governors, such as California's Arnold Schwarzenegger, who have shown an interest in joining the European carbon trading scheme. They are unlikely to go the whole hog and shun Bush's proposed talks, but nor will they give up on UN plans that they know are likely to be far more effective.

However, they, along with environmentally-conscious US politicians and business leaders, may also have to finally start to think the unthinkable and start to work out a strategy for reducing carbon emissions without a genuine global agreement.

During any discussion on climate change European politicians make the point that we "need" the US, China and India on board and that we can achieve little on our own. They argue, quite accurately, that our reforms are all but meaningless as long as the Chinese continue to open a coal-fired power station a week (they ignore the fact that those power stations often run factories making products for us, but there you go). Well if we "need" international agreement what happens if we can't get it?

The fear is that without a genuine international accord those countries committed to tackling emissions will have to back away from their reforms for fear that jobs and competitiveness will be lost to rivals with lower regulatory burdens and no carbon trading.

However, it has to be asked what good this would do. If they believe the climate science, as they say they do, they know this is a recipe for a couple or more generations of prosperity before the City of London finds itself submerged by the Thames.

Instead a new strategy will be required and it is one where business must take centre stage. The US administration's opposition to binding carbon targets centres on the belief that the shift to low carbon business models will damage the economy, so the onus is now on European and those US firms that wish to sign up to carbon trading to prove that the exact opposite is the case. Low carbon reforms and investments will have to continue and emission reduction targets will have to be hit but with the added pressure that they must be undertaken while outperforming those economies and businesses that have shunned binding targets.

It will have to demonstrated to the US government that its policy of politely asking the population to meet voluntary targets on carbon emissions while relying on untested new technologies that may take decades to emerge will actually make it less competitive, its economy less stable and its energy supplies less secure. Low carbon businesses operating under binding emissions targets will have to become the best performing businesses in the world, generating higher profits and enjoying lower costs, better brand status, and fewer risks than their polluting rivals.

Of course this will all be far, far harder than it would have been with genuinely international agreements and a global emissions trading mechanism that put a clear price on carbon emissions, but, sadly, we have no choice but to try.